Why Business Plans Are a Waste Of Time (5 min read)

I was clearing my stuff recently and I came across some business plans from previous years. They were all well written with nice flow charts, action points and promises of better performance. Of course, what we did over the following quarters and years had no connection to the business plan. I doubt I’m alone in this experience. In fact, I imagine most management deep down think that business plans are a waste of time.

I’ve given more thought on why they don’t work and find that the management guru Peter Drucker, entrepreneur Jason Fried (CEO of Basecamp) and thinker Nassim Taleb have the answers. The punchline, pardon the pun, is best captured by the boxer Mike Tyson’s quip that “Everyone has a plan until they get punched in the mouth.”

Fortune Telling Is Bad

The biggest weakness of most business plans is that they try to predict the future. Jason Fried cuts to the chase by saying:

“Unless you are fortune teller, long-term business planning is a fantasy. There are just too many factors that are out of your hands: market conditions, competitors, customers, the economy, etc. Writing a plan makes you feel in control of things you can’t actually control. Why don’t you call plans what they really are: guesses. Start referring to your business plans as business guesses…Now you can stop worrying about them as much. They just aren’t worth the stress.” (ReWork: Change the Way You Work Forever, Jason Fried, 2010)

Therefore one must minimise the fortune telling by reframing the question. Peter Drucker suggests the following:

“Traditional planning asks: ‘what is most likely to happen’ Planning for uncertainty asks instead ‘What has already happened that will create the future?’….The question that faces the strategic decision-maker is not what his organisation should do tomorrow. It is: “What do we have to do today to be ready for an uncertain tomorrow?” (Management: Tasks, Responsibilities, Practices, Peter Drucker, 1973)

Retain Optionality and Improvise

Even then, Fried warns us not to be beholden to what we said in in our past business plans:

“Plans let the past drive the future. They put the blinders on you. ‘This is where we’re going because, well, that’s what we said we were going.’ And that’s the problem: Plans are inconsistent with improvisation. And you have to be able to improvise. You have to be able to pick up opportunities that come along. Sometimes you need to say,’“We’re going in a new direction because that’s what makes sense today.”’ (“ReWork: Change the Way You Work Forever”, Jason Fried, 2010)

Nassim Taleb is constantly reminding us that black swan events completely disrupt businesses and the randomness of events forces companies to drift far far away from where they thought they were going. In such a world, he argues for making your organisation anti-fragile:

“This ability to switch from a course of action is an option to change…Optionality at its core is what makes you anti-fragile and allows you to benefit from the positive side of uncertainty, without a corresponding serious harm from the negative side.” (Anti-Fragile: Things that Gain From Disorder, Nassim Taleb, 2012)

On-the-ground Experience Matters More Than Top-Down Pontificating

Taleb has also written much about the value of experience over theory – the latter is what business plans often are. Fried talks about the irony of business plans which make big decisions with the least amount of information:

“The timing of long-range plans screwed up too. You have most information when you’re doing something, not before you’ve done it. Yet when do you write the plan? Usually before it’s even done. That’s the worst time to make a big decision. “(“ReWork: Change the Way You Work Forever”, Jason Fried, 2010)

The importance of testing new ideas is highlighted by Drucker:

“Everything improved or new needs first to be tested on a small scale, that is, it needs to be piloted. The way to do this is to find somebody within the organisation who really wants the new. Everything new gets into trouble. And then it needs a champion…And this person needs to be somebody whom the organisation respects” (Management Challenges for the 21st Century, Peter Drucker, 1999)

Today’s (and Tomorrow’s) Best People Must Be Responsible For the Most Important Tasks.

And the commitment of the best people to the plan is what gives the strategy any credibility:

“The distinction that marks a plan capable of producing results is the commitment of key people on specific tasks. Unless such commitment is made, there are only promises and hopes, no plan. A plan needs to be tested by asking managers, “Which of your best people have you put on this work today?” The manager who comes back (as most of them do) and says ‘But I can’t spare my best people now’ is simply admitting that he does not have a plan” ?” (“Management: Tasks, Responsibilities, Practices”, Peter Drucker, 1973)

Drucker tells us that whatever the plans are, we also have to remember that today’s managers will not be around forever, so the future managers have to be planned for too. It is they who who will have to adapt to today’s decisions:

“Concretely this means that today’s mangers must systematically provide for tomorrow’s managers. Tomorrow’s managers alone can adapt today’s decisions to tomorrow’ conditions. Systematic manager development is first needed for the sake of decisions made today. In the last analysis, managing a business always comes back to the human element – no matter how careful the analysis.“(The Practice of Management, Peter Drucker, 1954).

A Story About Everything That Is Wrong With Business Plans

Finally, Taleb gives a funny anecdote in this regard that neatly captures everything that is wrong with business plans: the futility of forecasting, the lack of practical information and the instability in management itself:

“In the summer of 1998 I worked at a European-owned financial institution…The unit involved in trading had hired five managers, who had to meet throughout the summer in order ‘to formulate the five-year plan’…To a fellow deeply sceptical of the central planner, the notion was ludicrous; growth within the firm had been organic and unpredictable, bottom-up not top-down. (It was well known that the firm’s most lucrative department was the product of a chance call from a customer asking for a specific but strange financial transaction [which led to the new unit]…

The managers flew across the world in order to meet: Barcelona, Hong Kong etc. A lot of miles for a lot of verbiage. Needless to say they were usually sleep-deprived. Being an executive does not require very developed frontal lobes, but rather a combination of charisma, a capacity to sustain boredom and the ability to shallowly perform on harrying schedules.

The managers sat down to brainstorm about the medium-term future – they wanted to have “vision”. But then an event occurred that was not in the previous five-year plan: the Black Swan of the Russian financial default of 1998…It had such an effect on the firm that none of the five was still employed there a month after the sketch of the 1998 plan” (Black Swans: The Impact of the Highly Improbable, Nassim Taleb, 2007)